When Should Organizations Change Their Mix of Products?
Here’s a common dilemma in an organization: One team relies on another team to supply outputs, and the supplying department claims that it needs a certain budget to meet those demands. However, the supplying team may be inflating its cost estimates in order to give itself a comfortable cushion.
“People like to pad their budgets,” says Rick Antle, the William S. Beinecke Professor of Accounting at the Yale School of Management. “They like to get more resources.” This near-universal tendency for departments to leave themselves a little leeway can end up distorting the final choices managers make about product mix—creating a tendency to stick with existing proportions.